The Compensation Scheme of Last Resort’s (CSLR) failure to apportion costs to those responsible for advice misconduct means the government should partly fund it and spread excess charges across all Australian Financial Complaints Authority (AFCA) sub-sectors, according to the SMSF Association.
The industry body made the suggestion as part of its submission to the Treasury consultation on how to impose a special levy to meet the funding shortfall for the CSLR expected in 2025/26, stating it was the most efficient and equitable way to fund the levy.
SMSF Association chief executive Peter Burgess noted while the estimated $47 million shortfall for 2025/26 was currently attributed to the financial advice sub-sector, Australian financial services licensees that were also AFCA members were not responsible for the deficit in potential unpaid compensation claims.
“There is no element of the current CSLR’s industry funding model that is predicated on direct industry culpability for instances or classes of misconduct,” Burgess said.
“In these circumstances, we believe the most effective way to quickly compensate eligible claimants is to spread the cost of the special levy across all sub-sectors.”
He added it appeared inequitable for some sub-sectors to fund unpaid claims for another sub-sector, but pointed out the scheme’s design was flawed, as well as the absence of government support for its aims or sustainability.
“The reality is that the current CSLR model is not equitable – each sub-sector is mandated to fund compensation for the misconduct and deliberate negligence of their peers over which they have no control nor influence,” he noted.
“The government is the only stakeholder that has the power to enact and affect the regulatory settings that participants must operate within. Given this, we believe the government should also be responsible for funding part of the special levy.
“While the need for a special levy was considered in the design of the CSLR as a key funding mechanism for a black swan event following a large failure, it was not designed to fund the flock of black swans that we have experienced and appear to continue to experience in recent times.”
The association’s view is similar to that of the Financial Advice Association Australia, which said the compensation cap of $20 million should be applied to the advice sub-sector and the excess spread across other sub-sectors to ensure the sustainability of the scheme and the viability of any one sector covered by it.
The major accounting bodies stated the levy was a band-aid solution that masked the need for reform of the CSLR so it only made payments when all other avenues for compensation had been exhausted.
